Greenwashing companies? Old habits die hard

Not long ago, university researchers summarised all the evidence on how businesses, governments and others distorted information to produce a view that suited them. They called it the “dark side of information management”. They showed how widespread this disinformation behaviour was. Recently, this behaviour has emerged in a new form, which sees companies greenwashing.

It takes many of the forms mentioned in the university research. These include deliberate lying or deception, delusional optimism, simple overconfidence or senior managers’ plain ignorance of what is really going in their business operations. Another form of companies greenwashing is creating an information fog, so customers, employees or others find it hard to understand what is going on, and so make inappropriate choices.

Information gaps and fog

As Ethico’s Ciarán Hughes, points out, there is a huge gap between what employees want for their pension savings and what employers and others are providing. The latter is often watered down or greenwashed information, with poor employee education concerning what different choices mean for the environment. Hughes also idtifies the risk of companies investing in greenwash marketing as opposed to truly environmental actions.

The creation of a fog of information and resulting confusion among investors is also identified by Leo Almazora. She explains that renaming funds and other forms of greenwashing have reduced transparency for  investors. This is one reason why financial regulators around the world, such as the US Securities and Exchange Commission are focusing on improving clarity in what investment funds publish about their ESG factors. 

These initiatives are important, as even financial advisors can be confused about what different environmental claims mean. For example, the Canadian Responsible Investment Association’s survey of Canadian financial advisors showed that advisors were weak at identifying correct environmental statements. They also  seemed to overestimate their knowledge. As Monica Landry points out, this means that greenwashing is quite easy to do!

Beyond better investor education

We should be careful about uncritically accepting that better investor education is needed. The call for better investor education has been around for a long time, as Charlotte Beyer pointed out back in 2012. She said that despite all the investor education already being carried out back then, there is no clear evidence that more education produces better decisions. Indeed, it can have the opposite effect, as investors become over-confident in how they manage their investments. 

This can lead to destruction of their own wealth if they move towards self-service, as university research shows. Yet better investor education is still being promoted intensively by industry bodies, such as the European Fund and Asset Management Association. Their report identifies how many investor education initiatives are under way in Europe. Green investment is a key topic in the report, which suggests that education is needed due to the proliferation of green claims and the risk of undermining of investor confidence through greenwashing.

Investing is a complex business

Even “experts” get it wrong – quite often, going by recent financial history! Rather than relying on complex statements by companies and funds and on improved education to help investors interpret this information, wouldn’t it be better to keep things simple and produce straightforward, evidence-based data on what companies promise, the quality of their promises (e.g. how specific and comprehensive they are), and whether they actually fulfil their promises? 

This approach works well for other complex purchases by individuals, such as automobiles, where independent data on performance, reliability and environmental impact has a big impact. Occasionally automotive companies lie, but they are found out, as the dieselgate scandal has shown. The same transparency is now needed in environmental matters.

The same transparency is now needed in environmental matters. We need clearly independent sources which track what companies promise, the quality of their promises (e.g. how specific and comprehensive they are, whether they have clear timings attached to them), and then whether they actually fulfill their promises. Without such data, we will always be vulnerable to greenwashing.

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